Jaguar Financial slams HudBay's mercenary Lundin bid
Jaguar Financial Corp(C:JFC)
Shares Issued 107,562,832
Last Close12/4/2008 $0.07
Friday December 05 2008 - News Release
Also HudBay Minerals Inc (C:HBM)News Release
Also Lundin Mining Corp (C:LUN)News Release
Mr. Vic Alboini of Jaguar reports
JAGUARCONSIDERS PROPOSED HUDBAY AND LUNDIN TRANSACTION TO BE RELATED PARTYTRANSACTION REQUIRING HUDBAY SHAREHOLDER APPROVAL AND PROVIDES UPDATEON SHAREHOLDER MEETING REQUISITION AND PROPOSED OFFER
Jaguar Financial Corp. has outlined the reasons it believes the proposed transaction (theLundin transaction) between HudBay Minerals Inc. and LundinMining Corp. is a related-party transaction that requiresapproval from a majority of minority shareholders of both companies.
Jaguar also provided an update on its requisition of a meeting ofshareholders of HudBay to replace the existing directors withnominees proposed by the requisitioning shareholders as well as an update onits intention to make a takeover bid (the proposed offer) to acquire all ofthe issued common shares of HudBay. Jaguar owns 1.5 million common shares ofHudBay representing approximately 1 per cent of the issued shares.
The requisitioned meeting
As reported in Stockwatch on Nov. 24, 2008, Jaguar announced that certain HudBay shareholders,including Jaguar, requisitioned the meeting to replace the current directorsof HudBay. With the input of shareholders, Jaguar intends to propose eightnominees to the HudBay board, all of whom are independent of Jaguar, with theexception of one nominee from Jaguar.
The proposed offer
As reported in Stockwatch on Nov. 21, 2008, Jaguar announced that it was considering making theproposed offer which, as at that date, effectively involved a distribution ofsubstantial cash to the HudBay shareholders from the existing cash resourcesof HudBay and a further distribution of additional cash from the sale of theremaining assets of HudBay. Since that time, Jaguar has consulted extensivelywith, and has received important input from, many HudBay shareholders, some ofwhom have expressed a preference for maintaining an equity interest in theHudBay business after receiving a substantial distribution of HudBay'sredundant cash.
Accordingly, if the proxy contest or proposed offer is successful, thecurrent intention is to make a substantial distribution of HudBay's redundantcash to shareholders but also retain sufficient working capital within HudBaysuch that HudBay can continue its current business under a new board ofdirectors and a new senior management team. The intention is also to explorestrategic options which may include merger and acquisition transactions thatare value creative, properly structured and attractively priced, unlike theLundin transaction.
Related-party transaction
Jaguar believes that the recently announced Lundin transaction is arelated-party transaction and is subject to approval by a majority of minorityshareholders of both HudBay and Lundin. In addition, a valuation of Lundinshould be prepared by a completely independent investment bank acting asfinancial adviser to the independent directors of HudBay.
Through a stand-alone transaction that is not conditional on completion ofthe Lundin transaction, HudBay has agreed to purchase 97 million common sharesof Lundin from treasury which, if completed, would result in HudBay owningapproximately 19.9 per cent of the issued common shares of Lundin and make HudBayLundin's largest shareholder. HudBay's ownership position in Lundin wouldrepresent approximately 1.5 times that of Lundin's next largest shareholder,which would own only approximately 12.9 per cent of the issued and outstanding sharesof Lundin. If the private placement is completed, HudBay will be an insider ofLundin before the proposed completion of the Lundin transaction and wouldlikely be its effective controlling shareholder. In either case, HudBay wouldbe a related party of Lundin well before completion of the Lundin transaction.
The joint press release of HudBay and Lundin in Stockwatch dated Nov. 21, 2008,refers to a group of shareholders owning 21.1 per cent of the Lundin shares which hasagreed to vote its shares in favour of the Lundin transaction. This groupwould own 10.5 per cent of the issued shares of HudBay if the Lundin transaction iscompleted and, if the group acts in concert, would be the largest shareholder ofHudBay subsequent to the Lundin transaction and could effectively controlHudBay at that point.
Also, Lundin shareholders would own slightly more HudBay shares thancurrent HudBay shareholders subsequent to completion of the proposed Lundintransaction. As a result, the proposed Lundin transaction could be viewed as areverse takeover of HudBay by Lundin.
Consequently, for a variety of reasons, Jaguar believes that completionof the Lundin transaction would result in a material change of control ofHudBay, which should also necessitate HudBay shareholder approval.Interestingly, if Lundin was a private company, the Lundin transaction wouldrequire a HudBay shareholder vote without consideration of related-partyissues.
Further, Jaguar considers HudBay and Lundin to be related as a result ofhaving common directors and executives who have a history of completingtransactions with each other. There are two directors who serve on the boardof directors of both HudBay and Lundin, Colin K. Benner and Donald Charter.
The proposed Lundin transaction will be at least the third time in whichMr. Benner and Allen Palmiere, chief executive officer of HudBay, willhave worked together or acquired each other's company. Mr. Benner and Mr.Palmiere are both former executives of Breakwater Resources Ltd.
Mr. Benner was vice-chairman and chief executive officer of EuroZincMining Corp. from December, 2004, to October, 2006. EuroZincmerged with Lundin in October, 2006, and Mr. Benner was appointed vice-chairmanand chief executive officer of Lundin for four months, resigned as chiefexecutive officer in February, 2007, and stayed on as vice-chairman of Lundinuntil January, 2008. It appears that Mr. Benner received $2.25-million as a resultof his resignation from Lundin.
After leaving Lundin, Mr. Benner became vice-chairman and chief executiveofficer of Skye Resources Inc. from March, 2008, to August, 2008. Skyewas acquired by HudBay in August, 2008. According tothe Skye management proxy circular, dated July 18, 2008, as part of the Skyeacquisition, Mr. Benner received $4.03-million as compensation for beingterminated in August, 2008, and a special transaction bonus that amounted to$2,893,000. His total compensation was $6,923,000, all for six months work atSkye before it was acquired by HudBay in a value-destructive transaction thathe was instrumental in orchestrating.
In January, 2008, Mr. Palmiere was appointed chief executive officer of HudBay, and within afew months, was one of the principal advocates of the Skye acquisition (withMr. Benner at Skye). HudBay's share price dropped from $14.79 on the day priorto the Skye acquisition announcement to $5.23 on the day prior to theannouncement of the proposed Lundin transaction. Mr. Palmiere was alsoinstrumental in developing the ill-considered proposed Lundin transaction.
Jaguar also notes that GMP Securities LP may be directlyconflicted by its role as financial adviser to the special committee of theHudBay board while also providing a fairness opinion to the same specialcommittee. If a success fee is payable to GMP in its capacity as financialadviser on the Lundin transaction, GMP cannot be independent in providing afairness opinion. Vic Alboini, Jaguar's chairman and chief executiveofficer stated: "The purpose of a fairness opinion is to make a completelyindependent recommendation on whether the Lundin transaction is fair, from afinancial point of view, to the shareholders of HudBay. The fairness opinionprovided by GMP in the Lundin transaction is effectively saying that it isfair to pay GMP a success fee." GMP previously acted as financial adviser toHudBay in the Skye acquisition while also providing a fairness opinion. GMPalso acted as financial adviser to Lundin in the merger of Lundin and TenkeMining Corp. In Jaguar's view, GMP is clearly conflicted and is notin a position to provide an independent fairness opinion to the HudBayindependent directors on the Lundin transaction.
It appears the same parties that benefited from the Skye acquisition,Mr. Palmiere, Mr. Benner and GMP, also stand to benefit from the Lundintransaction, at the expense of HudBay shareholders. The management anddirectors of HudBay collectively own only approximately one-fifth of 1per cent of HudBay's issued and outstanding shares; it is clear that theirinterests are not aligned with the interests of HudBay shareholders. HudBay'sleadership seems intent on attempting to build a mining empire at any cost,without consideration for shareholder wealth.
According to HudBay's management information circular dated May 29, 2008,the exercise price of management options is as high as $20.80 per share.According to Lundin's management information circular as at May 1, 2008, theexercise price of management options is as high as $12.74 per share. TheLundin transaction potentially provides HudBay and Lundin management with theopportunity to issue new options at exercise prices closer to current marketprices. If this does occur, it would be another example of how management anddirectors benefit from the Lundin transaction at the expense of HudBayshareholders.
Jaguar is reviewing various legal remedies before securities commissions,the Toronto Stock Exchange and the courts. Jaguar is considering filing anapplication with applicable securities regulators requesting that the Lundintransaction be cease traded unless it is approved by a majority of theminority HudBay shareholders and a valuation is prepared by a completelyindependent investment bank.
Jaguar is also reviewing the possibility of commencing a civil actionagainst the directors and certain officers of HudBay for, among other things,various relief including the cancellation of the Lundin transaction anddamages for the losses incurred by HudBay shareholders if the Lundintransaction is completed.
© 2008 Canjex Publishing Ltd.
Man, is HB starting to smell bad.Allegedly IMHO